Fighting the L$ downward spiral – a solution

The future ? SL’s US$ economy

Let’s now extrapolate a bit, and fast-forward a few years into the future (probably not many) where basically all products and services are offered in US$ (or Euros, for that matter). People will change their mindsets and know exactly how much they’ll spend today and earn tomorrow; the L$ value will be irrelevant. You could be exchanging half a billion L$, but in your mind you’ll be giving away just one or two US$. So all the usual talk about the economy in Second Life will be just around US$, not a “weak currency” that nobody really cares about.

We will lose one important thing in SL ? a virtual country should have a virtual economy! ? but we will gain something else instead: people will now trust the transactions, correctly estimate the value of those, and be prepared to offer reasonable prices (a recent example: a reasonably recent user was willing to offer US$2 for two weeks of complex scripting, perhaps totalling 40 or so hours of work. In RL, a professional programmer would perhaps charge US$2000…). This will make Second Life more credible. Readers of Prokofy’s blog will have read often how he complains that he has to work for US$1.48 an hour in Second Life, doing the same things that would more likely earn a hundred times more in RL.

This will probably not change much ? I hardly expect people to be willing to pay US$100 for a new outfit in Second Life any time real soon now ? but at least something will change: we will be paying with real money to content producers, not with “funny money” that you don’t know how much it’s worth anyway. Definitely an important change!

There might be even an interesting side-effect. As more and more people adopt solutions similar to Sol’s, and more and more content producers like Starley add “US$ vendors”, people will be less inclined to devaluate the L$ more, since at some point, this will become utterly irrelevant. I can understand the thrill to be a “billionaire in Second Life”, but what’s the point if those billion L$ will hardly get something else than a new pair of blinged shoes? The incentive that many have to force the L$ down artificially, to be able to pay much less for content, will simply disappear, as the content producers will work with fixed prices in US$. After all, this is what also happens over the world in developing countries, where the governments don’t understand how to regulate their economy properly, and the businesspersons have to “get out of the loop”, so to speak, and offer products and services using a strong currency. Which is naturally accepted by everybody wanting to do a living in a real country.

I’ll skip the discussion if SL is or not a “real country”, but one thing is certain: there are real people, really talented individuals, that are setting up their businesses in Second Life. And these individuals have a choice: they can either stay inside this virtual economy and get money out of it, or they can move elsewhere, where there is no fear that their skilled talent is undervalued. If they are in SL, they expect that they can get at least some compensation for their efforts, and a real compensation. Designing a full outfit with photoreallistic texturing in SL is as time-consuming as doing it for a 3D modelling tool (say, Poser, or Maya, or Lightwave, or 3DS). There is a market for those ? communities like Renderosity or DAZ constantly sell clothes and props for 3D avatars, for a few bucks. And that market has its own share of consumers, consumers who are used to pay those few dollars for high-quality content. Moving many of those talented individuals into Second Life requires that SL, as a platform/game/environment/community rewards them more than using a simple website, and this is true from a concept perspective: only Poser pros are interested in paying, say, two dollars for a ready-made hair for Poser. On the other hand, Second Life offers 260,000 consumers that don’t even know how to spell “Poser”, but are very eager to pay those very same 2 dollars for hair. It’s a huge market, since the total number of Poser users who regularly buy and sell 3D content are perhaps a few thousands (and still enough to sustain a virtual content economy on those communities!), while things like Second Life provide an incredibly much large consumer base, growing at a fast pace (and yes, even alts need new hair and shoes!). Better than that: hair, in the Renderosity/DAZ model, is a professional item sold to professionals. In Second Life, it’s a mass-marketable product for the the regular user, you don’t need to have a college degree in 3D modelling to be able to attach hair to your avatar.

Unnecessary to say, Second Life has an enormous potential in creating a market that simply didn’t exist before. Actually, I’m rather surprised that this market isn’t being explored much more. At a time, doing volunteer duty on Help Island, I saw batches of new talented artists, that asked not the usual question ? “how do I make money here?” ? but instead told things like: “I want to sell content here, what should I do?” There was an incredible amount of them coming to Second Life. And these are not the type of people who get goggle-eyed at reading BusinessWeek, Wired, or Slashdot; but the ones that live from their talent in creating 3D models, and that now had a way to reach a much wider audience for their products and services.

Ultimately, my hopes are that in the near future, people will not find it worthwhile to further “game” the value of the L$ (in the sense that more L$ meant more things to be bought for US$). The L$ would then fluctuate according to a real supply-and-demand equation, not as a cool “hack” to provide people with more money to spend. Still, our RL experience shows that once a country’s currency is abandoned because people cannot trust their government’s efforts to make it stable, it’s very hard ? or even impossible ? to go back. At this point, we probably need to really recruit Castronova and ask him what he would advise in this case 🙂

You can’t “force” people to stop “gaming the L$” ? people will “game” things if they see an advantage in doing so. This is rather an explanation of what happens when you game things too much, and people need to overcome the limitations of “gaming”, thus making “gaming the L$” basically worthless. Remove the incentive for “gaming”, and it won’t be games. So the answer seems to be simple: if the L$ does not provide an useful virtual currency for trade, producers of content and services will simply fall back to the Mighty Dollar.

Hopefully some will understand the implications of this. Then again, human nature being what it is, a few will try to reap the benefits right now before it’s too late ? ie. before all producers in SL move quickly towards an US$-only-based economy.

Many thanks to both Sol Columbia and Starley Thereian for their permission in using snapshots from their in-world shops. And, as a side-note, thanks to both of you (as well as others) for leading the way in this upcoming paradigm change of our economy.